What Is Provisional Tax?

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Unsure of what provisional tax is and how it affects you?

You’re not alone! Many business owners are unsure of this complex and important tax. That’s where CFO360 comes in. We’re here to help you understand provisional tax, so you can make the best decisions for your business.

Provisional tax is a critical part of any business’ financial health. It’s essential that you understand it and how it applies to your company. That’s why we provide clear, concise information on provisional tax so you can make informed decisions about your finances.

We want to help you succeed as a business owner. That means taking the time to educate you about all aspects of finance – including provisional tax.

With our help, you’ll be able to confidently navigate this complex topic and make the best choices for your company.

To learn everything that you need to know about provisional tax please read our free article below today! You may access any section of the article which interests you by clicking on the links below.

What Is Provisional Tax?

Provisional tax can be explained as an advance payment made to offset against the Income Tax Liability for the respective year of assessment. This assists taxpayers in lessening their tax bill at the end of the tax period by allowing advance payments in two smaller payments (3rd payment is optional) based on estimates. There are two compulsory declarations to be submitted during the year of assessment.

How To Calculate Provisional Tax

Provisional taxes are calculated based on estimates. The estimated tax liability is calculated for the year of assessment. The first provisional payment is 50% of the liability, and the second is the total liability less the first provisional tax payment.

How To Calculate Provisional Tax For Companies

Companies automatically fall under Provisional Tax Payers. This amount is calculated on the estimated taxable income within a particular year. This can be done as follows: First Period ( Half of the Normal Tax Payable less: Employee tax less: Foreign Tax Credits = First Provisional Tax Payment) Second Period ( Normal Tax on estimated Taxable Income Less: employees tax deducted Less: first provisional tax payment Less: Foreign Tax Credits = Second Provisional Tax Payment.

SARS Guide | Provisional Tax Payment Calculation Example First & Second Period
SARS Guide | Provisional Tax Payment Calculation Example First & Second Period
SARS Guide | Provisional Tax Payment Calculation Example First & Third Period
SARS Guide | Provisional Tax Payment Calculation Example First & Third Period

How To Submit Provisional Tax On E-filing

Before submitting a provisional tax return, the “tax type” needs to be registered on e-filing. The return for provisional taxes is IRP6. To file the return, one should follow these simple steps.

  • Log into E-filing
  • Select returns issued
  • Then select provisional tax returns
  • Select the relevant period you wish to file the return for
  • Open the form
  • Then enter the turnover and profit amounts for the specified period
  • After doing this, calculate the tax on your profit and enter this as well
  • You should now have an amount payable if this is applicable
  • Then, you can find the reference number on the form and make a payment to the SARS-PROV public beneficiary using this reference number provided

What Is Provisional Tax IRP6

IRP6 is the abbreviation used for the provisional return completed by the taxpayer to declare their estimated taxable income for the respective period. There are two periods where an IRP6 is completed, for example, 2022/01 (representing the 1st six months of the year of assessment) and 2022/02 (representing the entire year of the year of assessment).

Do I Need To Pay Provisional Tax?

You must register as a provisional taxpayer; if you earn more than one stream of income, if you are working as an independent contractor or sole proprietor, you can pay taxes when necessary.

Is Provisional Tax Compulsory?

If a person receives more than one source of income, they should register for provisional taxes.

When Is Provisional Tax Payable?

You must make the first provisional tax payment within six months of the start of the financial year, so for financial years starting in March, provisional tax is payable on the 31st of August. You must make the second payment by no later than the last working day of the year of assessment which would be either February 28/29. The third payment is voluntary and can be made within six months of the financial year.

Who Is Exempt From Provisional Tax?

Taxpayers who are registered for income tax are not required to pay/register for provisional tax if they do not carry on any business and their taxable income earned for the year does not pass the tax threshold. Taxpayers who are registered as a deceased estate, approved PBO, Recreational clubs, Body Corporates and share block companies are also exempt from being registered for provisional taxes. Note that individuals who earn interest, dividends, rental from letting of fixed property and remuneration from an unregistered employer are less than R 30,000.00 for the year are also exempt.

How To Fill In A Provisional Tax Form

The Taxpayer’s details are pre-populated on the form. The Gross income field: The amount input should be the total estimated income; this includes sales and any other income. The estimated Taxable income is the estimated income less deductions. The tax amount calculated using the applicable rate should be entered in under the “Tax on estimated taxable income”.

When Is The Second Provisional Tax Payment Due?

It is due every six months from the beginning of the financial year.

Do Companies Pay Provisional Tax?

Yes, there is no voluntary registration for this tax type, and it is, therefore, mandatory for all companies to ensure provisional tax returns are filed and paid in the event that their operations attract taxes.

How To Pay Provisional Tax Online

  • Log onto E-filing (create a profile if you don’t already have one).
  • Select “make payment” after requesting to complete and submitting IRP6 to Sars.
  • Fill in banking details and request payment requests.
  • Log into the banking app or online banking and approve the request.

How To Register For Provisional Tax On E-Filing

  • Go to organisations
  • Then to tax types
  • Select manage tax types
  • Next to the provisional tax, you type in the income tax number and tick the box.
  • Go to the bottom of the screen and click submit.

What Is The Difference Between Provisional Tax And Income Tax

Provisional Taxes are based on estimated/projected taxable income, whereby the Income tax is the tax imposed based on the actual taxable income generated during the year of assessment. Another difference is that Income Tax is declared once in the year of assessment, and the Provisional Tax is declared twice.

When Is The First Provisional Tax Payment Due

The first provisional tax payment has to be made within six months of the start of the financial year, so for financial years starting in March. Provisional tax is payable on the 31st of August.

Who Is Responsible To Pay For Provisional Tax

The taxpayer. It is also the responsibility of the accountant of the individual/company to remind them and let them know the amount and the due date. But all in all, it is the taxpayer’s responsibility.

Conclusion

That’s provisional tax in a nutshell. If you have any other questions or need help filing your return, don’t hesitate to contact us and we will be more than happy to assist you. Please note that it’s still best to consult an accountant or us directly this is purely informational and compiled with the intention to be helpful and useful, in some cases the info might be outdated/inaccurate. If so please don’t hesitate to let us know and we will update our article.

Contact us if you require any assistance with accounting, bookkeeping, reporting, business advisory, or tax compliance services. Call us on 011 568 2390. Email us directly at [email protected] or you can complete our contact form.

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